Ncs Daily Journal

ncs daily journal © NCS 1998

Why NCS feels import Katana will have pricing parity

In the past couple of console releases that we've taken part in, prices at the outset have always been high. We can attribute the two-fold and even four-fold price premiums to heavy demand versus meek supply. In some cases, that would be a true statement. However, we've been in the video game industry for a while now and have some insight into how vendors, especially those with global reach can control the pricing of consoles in the beginning of their life cycle. Case in point: The Playstation was met with huge demand when it first made it to the Japanese marketplace. One should note that the initial retail price of a Playstaion was in the US$400 range in Japan. Our initial retail price for the PS was US$550 which matched other retailers in the United States. We had little control over the pricing (or our fate, for that matter) back then and our cost at the time was roughly US$510 landed. However, back in those days, prices up to US$1200 for a Playstation were not uncommon and certain vendors charged it without flinching. Legendary is the story of a desperate Los Angeleno who shelled out US$1800 for a Playstation and a copy of Toshinden and Rage Racer. Makes the current US$149 look like a dream doesn't it? All Playstation export pricing was controlled by a few major distributors in Japan who sub-distributed to their local trading partners. From there, these partners would export at their prices, which were kept artificially high due to the unrelenting demand for the system across the globe. Fact was, people were willing to pay for the Playstation, and pay for it dearly.

Fast forward to the spring of 1996, a mere two years ago. Anticipation was running high for the Nintendo 64 which was imminent. Our pre-orders for the units were finished and we had 150 sold which equaled the number that we were allocated from the primary Japanese distributor. Admittedly, prices for the Nintendo 64 were outrageous back then. Standard issue was US$650 for the console and two games, Mario 64 and Pilot Wings 64. Shave the $650 price by $100 if you only wanted Mario 64. As high as that may seem, again, we had little control over the initial pricing because of collusion between exporters who had agreed to sell at a certain level to all parts of the world. There was general price setting in the United States as well by companies. In those tentative first few days, we had little problem selling more N64 consoles and we received subsequent shipments of 50 units spaced between days. However, some vendors were not having a great time selling the N64 and about 8 days after taking initial stock, prices began to creep down because of general panic among those vendors. Here was a console that was retailing at about US$250 in Japan, seeing valuations that were double the going rate in Japan. In most markets, when panic sets in, artificially high prices get real very quickly. The price of the N64 dropped overnight by $200 to an average of $450 for the console and both games. The price would drift even lower in ensuing weeks to levels that were below market in Japan. That was not a great time for us. First of all, we had sold consoles at $650 to 150+ customers who were perfectly happy with their spanking new 64-bit machine but to see the price discounted drastically to $450 in a matter of days was unsettling. Alarming is another word that may be used to describe the general feedback that we got. Secondly, the price instability stopped most retail buyers from getting into the N64 scene because many were hoping for further price drops. Those that did wait for more discounts and fire sales, got their price drops. No other event has shown the immaturity and the fragile nature of the domestic import market where prices are controlled by a few players. When any one of those players decides to panic, prices are killed. Remember that in the import market, there is no price protection from overseas exporters and the whole business is inherently risky.

Fast forward further to the current day. It’s a new year and 1998 is ruled by the Playstation. In the USA, Sega’s Saturn console has waned to the point where major domestic retailers have lost their faith and are dumping the unit. Retail prices have been slashed by 60% and even 70% to get rid of the stock. The tactic for Sega of America would be to prime the new console pump and get word of their next machine out, which would essentially concede defeat in the 32-bit marketplace. No manufacturer whispers it's next big thing when it's current big thing is selling through. The information leaks have been making their way to the market by way of print and through the web. Leaks help to stoke demand and eventually, there’ll be fever for the new Sega console. The Japanese version of Katana (current operating name) is expected sometime in the fall of 1998. We’d put it more towards October to take advantage of the busy holiday season. Although prices have not been set, we’re fairly certain that the unit will debut at US$400 in Japan. That would be at the retail level. In all likelikhood, vendors in the USA, including yours truly, will be able to offer the console at say, $475. Why the price disparity? Shipping costs will inevitably increase the price of the console and vendors will have to make some sort of profit to justify bringing Katana in. Why the low price disparity compared to previous doubling and trebling of retail prices? The reasons are varied but there are two major reasons why prices will not be high. One, vendors in Japan are less likely nowadays to increase prices or gouge due to buying volume and strong trading ties with their customers. It is obviously tempting for suppliers to sell at a major premium when Katana is first available but they will be hard pressed to justify their prices when the console is readily available in Japan. The Nintendo 64 debacle still remains fresh in recent memory. A high priced console is no longer sustainable because companies in the USA can buy in the hundreds and thousands of units these days. When you get up to those numbers, a quick sell through is a must and the only way to achieve that is by keeping prices within range of the Japanese retail price. We all took a hit with the N64 in 1996 and it simply won't happen again. Competition within the supplier marketplace will also serve as a deterrant to any price gouging. Of course, if all of the vendors who have global export business decide to collude and sell at high levels, we won’t be able to do much but the chances of this happening again are slim. It would also be impossible to maintain for an extended amount of time. The second major reason why high price premiums are no longer viable is because the world is much smaller now. The pervasiveness of the internet has made it possible for information to travel much faster than before. Most instances of price disparity in the wired world will be met with resistance by consumers. If a high priced console can't find buyers, it'll be discounted to match the prevailing market price. NCS feels strongly that import Katana will not see any major price premium in the USA. Of course, bumps and spikes will occur across the geographic retailing map. A few of our resellers have plans to retail Katana in the "$600 or $700 range since it'll be hot". If they can get it, more power to them. The consumer whose only access to gaming information is the monthly issue of EGM will likely pay a higher price for Katana due to limited access to information but internet savvy customers will likely pay little more than what consumers are paying in Japan. We’ve come a long way with imports. Playstation games used to sell for upwards of $80 per title. Standard prices are now $58. Saturn games used to range in the $60 to $70 range. Most titles now match USA game prices at US$49. We won't even get into the days when Super Famicom Street Fighter II used to sell for US$180. Thats Street Fighter II, the first one - sans turbo, at $180. So, the general trend in our market has been price parity between the United States and Japan. Katana should be no different. Some suppliers may see Katana as a major event in that a new entertainment system is being released to the world and charge a month's mortgage payment for their units. However, staid vendors (our tried and true trading partners) will view the new console as another commodity that will be sold at the prevailing market price. All this only serves to give retail consumers fair prices and easy access to a console that won't be available domestically until the spring or summer of '99. So, the cycle will begin anew with Katana where we marvel at the new technologies being utilized and how the gaming immersion curve goes up another notch. The cycle will also begin anew for modification technique, the occasional home grown CDs (which NCS frowns upon), and the usual motley assortment of 3rd party accessories and special controllers. NCS figures it'll be a month after release that we'll see Katana's first golf simulation. Give it two months before the first strip mahjong game comes out. We'll see you there.

NCS will take delivery of two new Saturn imports tomorrow: 3 Wonders (finally) and Sega's Victory Goal: World Edition 1998. Both will retail at US$50. Pre-orders will be confirmed tomorrow morning.	NCS Daily Journal © National Console 1998
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